I just found out that we have over compensated one of our people by almost $8000.00. Here is the story in brief. This employee was promoted to a position that had a 10% increase. He is a stickler for gaining any and all advantage so he would have know prior to the promotion what that would have meant in actual dollars. I do not handle compensation but none-the-less when the 10% was keyed into our system it was done at a rate higher than what would have been his current rate resulting in a 33% raise. Our mistake. Now here are the issues and questions.

No doubt he knew that his difference in pay was significantly greater than 10%, yet he said nothing. It has been 3 -4 months. The position is one that requires high integrity and honesty as an officer in our organization. It has raised serious ethical issues on his ability to remain in this position. Thoughts?

Since we have found the mistake what can we do? Can we adjust his salary to what it should have been? Can we mandate that he repay the over-pay? Can we deduct this from his check?

Actually I am more disturbed about his ethics because of his position. But I still have to seek advice on behalf of payroll. HELP!!! 

Look at your state rules on overpayment.

Follow your company's rules on ethics.  You probably have a code of conduct.  Follow standard HR procedures and make sure that this person doesn't have a reasonable story to tell or wasn't promised this by another party.

Don't forget that whomever keyed the data has some accountability here as well.

I think different states have different rules on this. In some you can deduct from the very next paycheck an overpayment or even reverse a direct deposit that was made in error, but I think others are very strict. I do think you can inform him of the overpayment and demand he repay it. I agree on the ethics side. I don't pay much attention but I think I would notice an increase that was 3X higher then I expected. I'd certainly raise the issue with him and see what his explanation is and why it's an issue. Curious what others would do too.

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Barbie

Good point TXHR. Seems like the controls for payroll changes could use a look. Keying errors can happen but there should be a review of payroll transactions such has salary increases to make sure any errors are picked up before payroll is processed. Really important for changes in salary, overtime, bonuses, etc..

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Barbie

Thanks for the advice. I am in Virginia and I have the BLR Employment Law Guide for my state. Looking under the 'Compensation' tab I can't find any information that will help guide the issue of repayment. I really want to do this right. Can any of you that have responded help me to pin down a statute or something?

 We will most certainly have a discussion with him first to see what his story is. But I would be hard pressed to believe that an employee of his stature and responsibility would not have seen a raise of that magnitude.

. . . not to forget. . .we will also take a close look on how to avoid this in the future. I agree, something has to change in the system.

Try this: Va. Code Ann. tit. 40.1, 40.1-29(A)(1).

I also found this website:

http://www.doli.virginia.gov/whatwedo/labor_law/powp1_faq.html

If you still can't find the answer then I would consult an attorney.  I have used McCandlish Holton out of Richmond before when I had an employment case I needed help with in VA.

 

 

Thanks IT HR. I really appreciate the help. 

We encountered a similar situation though not for an officer level employee.  We corrected the salary to the right rate immediately and negotiated with the employee as to the correction of the overpayment (refund, payroll deduction, etc).  In addition to the simple dollar overpayment, there are tax implications as well.  I too would be disturbed by the ethics of the situation although I suppose it's possible that with auto deposit, the officer did'nt really pay attention to the net effect.  At a minimum your systems need to be reviewed to prevent this kind of thing happening again.  We perform an audit of all compensation information semi-annually.

I would have the error corrected immediately and notified the employee & the manager.  As long as your laws permit, I have always requested the funds to be returned.  Not a great situation, but it happens and should be handled in a consistent manner each time.  Some companies may use a % level that they request back (i.e. 75% of the overpayment must be recouped).

It is ultimately HR’s fault that it happened (lack of SOX controls/adherence), so I won’t be too hard on the EE and some folks really don’t look at their pay statements (although it sounds like this guy does).  I would work out an arranged auto-repayment plan that is documented and signed (to authorize the deductions).  Be sure to collect the funds before the year is over, so you don’t have to worry about a W2-C. 

Thanks to all. I never thought about the tax implications. Wow! I'll have the compensation people look closer at that.

 

HR_FUN. . . you make a good point. "It is ultimately HR's fault". My first post reflected my amazement that it happened and secondly that he said nothing. After a fews days and such good advice from people it is clear that we are as responsible, if not more so, than he was. If we had not made the mistake there would have not been an issue. Reality check. Thanks.

When I read these situations, it makes me glad to be both payroll and HR because I communicate very well with myself LOL.  But ultimately, there need to be checks and balances between HR and payroll for any wage/benefit issues outside of the employee telling you something is wrong.  I honestly keep a log of changes as HR.   And then I look at the log when I process each payroll and check off as I make changes.  And then afterward, I go back and check to make sure it happened correctly.  So the information on any change is both in the payroll system and in the HR files.